The European Union’s regulation mandating the rotation of audit firms for public-interest entities (PIEs) after a decade has triggered Flutter Entertainment, owner of Paddy Power and Betfair, to sever its long-standing partnership with KPMG. This directive, enacted in 2016, aims to uphold auditor independence and objectivity.
Financial Impact of the Shift:
In 2021, KPMG garnered £5.5 million ($6.7 million) from auditing Flutter’s accounts, underscoring the substantial financial dimension of this partnership. Notably, over £1.6 million of this sum flowed into KPMG’s coffers in Ireland, reflecting the centrality of Flutter’s operations in the region. The balance was disbursed to KPMG offices worldwide, showcasing the global scale of Flutter’s business reach. Despite this lucrative engagement, non-audit services accounted for a mere 6% of KPMG’s earnings, with Flutter imposing a cap on such services at 70% of the audit fees.
Industry Dynamics and Regulatory Context:
The EU’s regulatory framework has engendered a revolving door phenomenon among audit firms, epitomized by the dominance of the Big Four—KPMG, Deloitte, PwC, and EY—in the market. Mandatory rotation laws have perpetuated a cycle of client shuffling among these industry giants, ostensibly aimed at fostering competition and safeguarding auditor independence. However, critics contend that such regulations have merely facilitated a redistribution of clients among a select few firms, without significantly enhancing audit quality or diversity in the profession.
Implications for KPMG and Deloitte:
For KPMG, Flutter’s decision marks the termination of a lucrative audit assignment, constituting a significant loss in its portfolio of corporate clients. Conversely, Deloitte stands to benefit from this transition, positioning itself to assume responsibility for auditing Flutter’s accounts in the forthcoming fiscal year. This strategic shift underscores the fluidity of client-auditor relationships in a regulatory landscape characterized by periodic reassignments and realignments.
Flutter’s Perspective and Mitigating Factors:
Flutter Entertainment has expressed no animosity towards KPMG, attributing the change solely to EU regulations governing auditor rotation. Emphasizing the absence of compelling reasons beyond regulatory compliance, Flutter’s stance underscores the pragmatic necessity of adhering to legislative mandates, irrespective of their implications for longstanding partnerships or financial arrangements. This pragmatic approach reflects the company’s commitment to regulatory compliance and corporate governance best practices.
The mandated transition of audit firms for public-interest entities, as stipulated by EU regulations, has precipitated Flutter Entertainment’s decision to conclude its 20-year association with KPMG. This pivotal development underscores the intricate interplay between regulatory mandates, financial considerations, and industry dynamics shaping the audit profession. While KPMG grapples with the loss of a lucrative client, Deloitte stands poised to inherit a prized auditing assignment, exemplifying the fluidity of client-auditor relationships in a regulatory landscape characterized by periodic upheavals. Amidst these transitions, Flutter’s pragmatic adherence to regulatory imperatives underscores the imperative of navigating complex regulatory frameworks while upholding corporate governance standards.